I’m looking into renting a commercial space in a local office building in town but before I call up the lease agent want to understand some of the basics so I can understand if I can afford it. What’s baffling me is that some listings are “Net Net” (NN) and others are “Net Net Net”. What the heck do those mean?
Real estate is already complicated enough without more jargon, but the sad reality is that commercial real estate leases are super complicated because there are a lot of different factors involved.
The easy part is the number of square feet that the space contains and the monthly cost for that square footage. Where it gets complicated is when you start to factor in taxes and utilities, and that’s where we get to “net net” and what many people call “triple net”.
For example, I’ve been looking at a local space for my office that’s listed as costing:
What this means is that there are a number of spaces available in this building, ranging from 829 square feet (I’ll abbreviate this “sf” for simplicity) to 2348sf.
The lease on the space ranges from $22 to $25 per square foot, presumably depending on location, windows, and the desirability of the overall space. That’s also on an annualized basis, which also means that it’s for an annual lease. Do the math and the smallest space is going to cost (829*22)/12 = $1519/month.
But wait, we’re not done, because of the “net lease” effect. In addition to the rent itself, there are other costs associated with the operation of the space, costs that can include property taxes, insurance, repairs, utilities, and maintenance. These are often referred to as “net”, “double net” and “triple net” (or, yes, Net Net or Net Net Net, or NN and NNN).
According to my Google research, the key difference is that a triple net lease means that there’s no landlord responsibilities. Double net leases, by contrast, require the landlord to take responsibility for some aspect of the property, typically roof, structure or parking lot.
I’m not a commercial real estate expert, but my impression is that whether they say it’s one or the other of these, it’s just a cost that’ll be slapped on to the price, so $22 is really $22 + $6.98 or $28.98 in our example listing.
Do the math again and that means that the “total” cost of the smallest office space in this instance is (829*28.98)/12 = $2,002 per month. You can then recalculate that to be $2.41sf/month.
I hope that’s helpful. My take after having done the research and gotten thoroughly confused as I went along is to ask lots of questions about costs before you sign anything and consider having a lawyer review your lease too.
Good luck!
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I really enjoyed this post, Dave! Really awesome of you to spend the time to share your take on Triple Net Leases. I was a commercial real estate broker for over 15 years and tenants would always ask me about NNN leases and totally saw their eyes glaze over every time. To this day I see tenants get confused about this. What I found works best is to show the tenant the total dollar amount they will be paying at the end of the day and it worked well to help tenants understand.
Good discussion on triple net leases. For a summary about net lease investing here is a good infographic: http://nnncap.com/understanding-triple-net-lease-properties
Your advice about having an attorney look over the lease is spot on and should not be overlooked.
Very helpful, thanks for the explanation
what dose gross rent mean in commercial rentals?mike
If you’re looking for a NNN lease, there is a site called http://CreditTenants.com/ that has all the national retailers real estate contact info.
Nice job with the answer! Yes, a triple net lease means that there are no landlord responsibilities. As far as the Owner, that is the best Investment to have. The person wanting to lease can get aa average of utilities, etc to get an idea of their costs.
when someone uses 2 different computers from the same wireless network, does that mean their IP address appears the same?
How do you come up with estimated costs for NNN?
Dave, great website, I’m reading Blogging Hero’s and had to check out your site. Good stuff. I happen to be a real estate broker and can answer a few things. First NNN stands for Taxes, Insurance, and Common area Maintenance. Ususally a triple net lease is used on a shopping center or other retail property. Sometimes you can negotiate a cap on some of the negotiable expenses like gardening services but not Taxes for example. I suggest getting a retail real estate broker to represent anyone looking to lease space because the Landlord pays the commission fee and the listing agent has to split it like buying a house. It’s not rocket science but it will help to know what is negotiable and what isn’t and to have someone looking out for you. Best of luck!
Dave: in addition to your comments on the triple net leases, the renter should be advised that square footage is measured from the outside of the outside walls. Also the numbers contained in the net net portion can be increased at the whim of the authorities which also affects the lease costs usually upwards.
As I said earlier, I’m hardly a commercial real estate maven, but yes, it sounds like they’re saying that NNN costs are included in the $2300/month rate. What you need to nail down in writing, though, is that the NNN is a “not to exceed” cap, otherwise if there’s a leak in the roof, you’re still on the hook, which is not what you want to find after the fact!
Dave,
I understand the calculation for the NNN but I’m confused about this one. I came across a space for lease they are asking $2300 monthly and underneath it says (including NNN) does that mean the NNN is already applied to the 2300?